Death by Debt

The $555,000 Student-Loan Burden
by Mary Pilon/Yahoo Finance

When Michelle Bisutti, a 41-year-old family practitioner in Columbus, Ohio, finished medical school in 2003, her student-loan debt amounted to roughly $250,000. Since then, it has ballooned to $555,000.

It is the result of her deferring loan payments while she completed her residency, default charges and relentlessly compounding interest rates. Among the charges: a single $53,870 fee for when her loan was turned over to a collection agency.

"Maybe half of it was my fault because I didn't look at the fine print," Dr. Bisutti says. "But this is just outrageous now."

To be sure, Dr. Bisutti's case is extreme, and lenders say student-loan terms are clear and that they try to work with borrowers who get in trouble.

But as tuitions rise, many people are borrowing heavily to pay their bills. Some no doubt view it as "good debt," because an education can lead to a higher salary. But in practice, student loans are one of the most toxic debts, requiring extreme consumer caution and, as Dr. Bisutti learned, responsibility.

Unlike other kinds of debt, student loans can be particularly hard to wriggle out of. Homeowners who can't make their mortgage payments can hand over the keys to their house to their lender. Credit-card and even gambling debts can be discharged in bankruptcy. But ditching a student loan is virtually impossible, especially once a collection agency gets involved. Although lenders may trim payments, getting fees or principals waived seldom happens.

Yet many former students are trying. There is an estimated $730 billion in outstanding federal and private student-loan debt, says Mark Kantrowitz of FinAid.org, a Web site that tracks financial-aid issues -- and only 40% of that debt is actively being repaid. The rest is in default, or in deferment, which means that payments and interest are halted, or in "forbearance," which means payments are halted while interest accrues.

Although Dr. Bisutti's debt load is unusual, her experience having problems repaying isn't. Emmanuel Tellez's mother is a laid-off factory worker, and $120 from her $300 unemployment checks is garnished to pay the federal PLUS student loan she took out for her son.

This story hits a bit too close to home right now. I owe varied financial institutions the sum of what would be a nice starter home in some cities and will probably pay it off around the time I retire...or die, whichever comes first. That's why I get riled when people equate free education with socialism and then say we'll just all be owned by the government. Because right now I feel like I should have to wear a shirt that says "Property of ACS Financial. Utica, NY." I'd do anything to get out of this debt. I wonder if ACS would let me run drugs or become a hitman as repayment. Maybe I could give them my first born child. I'll figure something out.